FILE PHOTO - A consumer pays with a credit card at a store Tuesday, July 6, 2010 in Montreal. Canadian household debt has climbed to record-high levels.

Image Credit: THE CANADIAN PRESS/Ryan Remiorz, file

December 14, 2015 - 1:09 PM

OTTAWA - Canadian household debt hit a new record in the third quarter, as borrowing rose faster than income.

Statistics Canada said Monday the amount of household debt compared with disposable income rose to 163.7 per cent, up from 162.7 per cent in the second quarter.

That means the average household has roughly $1.64 in debt for every dollar of disposable income.

"The deterioration in the headline was expected, driven by a combination of sluggish income growth and still-hearty borrowing," Bank of Montreal chief economist Doug Porter said.

"Hot housing markets in B.C. and Ontario are driving mortgage growth, over-riding the softness in oil-producing regions. On the flip side, the relentless decline in oil and other commodity prices is dampening income growth."

Household debt and the housing market have been key concerns for economists and policy-markets.

Last week, Ottawa moved to cool some of the country's hottest real estate markets with new rules to require larger downpayments for houses over $500,000.

TD Bank economist Diana Petramala said the new rules would likely affect only a small segment of the overall housing market.

"However, set against a backdrop of rising unemployment, the debt-to-income ratio is still likely to continue to trek higher through 2016," Petramala said.

"The combination of rising unemployment and a continued decline in home prices is an immediate concern for oil-producing regions such as Alberta and Saskatchewan."

Low interest rates have helped consumers manage their debts, but there are worries about what may happen once the cost of borrowing eventually starts to rise.

The report on household debt came a day before the Bank of Canada is set to release its latest financial system review which will include an examination of household debt and potential vulnerabilities for the financial system.

Porter noted that while the household debt-to-disposable income ratio is at a new high, it likely will not dictate Bank of Canada policy.

"In its latest policy statement, the bank suggested that while 'vulnerabilities in the household sector continue to edge higher.' they see 'overall risks to financial stability are evolving as expected'," Porter said.

The household debt service ratio, the total obligated payments of principal and interest as a proportion of disposable income adjusted to include interest paid, slipped to 13.6 per cent.

The interest-only debt service ratio, household mortgage and non-mortgage interest paid as a proportion of disposable income, fell to a record low 6.1 per cent.

The ratio of total household debt to total assets edged up in the third quarter to 17.0 per cent from 16.9 per cent in the second quarter.

OPINION At least part of me wasn’t sure I should write this, given what happened last time. It was August 15, 2003 and like many Thursdays before it, I was scratching around for a column idea. The summer newsroom